1. New concession pact a booster shot for highway projects: Crisil

New concession pact a booster shot for highway projects: Crisil

The awarding of highway projects is expected to get a boost with the ministry of roads and highways clearing amendments to the model concession agreement...

By: | Mumbai | Published: September 16, 2015 12:49 AM

The awarding of highway projects is expected to get a boost with the ministry of roads and highways clearing amendments to the model concession agreement (MCA) for projects bid out on build-operate-transfer (BOT) basis, says Crisil Research.

Under the amended MCA, premium payment starts only from the fourth year after the completion date compared with the first year previously. “That’s a significant relief to both developers and lenders because most projects end up with debt-service coverage ratio of less than 0.8-1.0 time in the first 3-4 years after completion date. Additionally, the government has enhanced the scope of revenue-shortfall loans to include projects where judicial pronouncements impact cash flows,” Crisil observed.

The ratings firm said that deemed termination of projects that do not progress even after a year of award gives greater clarity on the termination process. However, no penalties have been levied on the awarding authority in such cases, it observed. Almost half the projects awarded between 2011 and 2013 had to be terminated because of delays in land acquisition and other clearances.

Ajay Srinivasan, director, Crisil Research, said, “Lender confidence, which was severely damaged in the last few years, will revive with the change in the clause related to premium payment, and introduction of the clause on deemed termination. Further, doubling the cap on equity contribution by the NHAI will make more projects viable at a time when majority of the BOT projects being awarded are on a grant basis.”

All these things scared off banks, with the result that lending growth to the sector more than halved in the past two years compared with the five years preceding, he added.

The inclusion of new clauses on real time data for toll collection and electronic toll collection will also increase transparency and lender comfort.

“The interest of users has also been protected because developers cannot increase toll rates prior to — or more than — what’s given in the official notification. Flouting will attract a steep penalty of up to 200% of toll fees. Also, if traffic is more than what the road is designed for, developers will have to spend on maintenance and augment capacity. It they don’t, another stiff penalty kicks in,” said Srinivasan.

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Tags: NHAI
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